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SUPPLEMENTARY AGREEMENT NO.2 ON MAINLAND AND HONG KONG CLOSER ECONOMIC PARTNERSHIP ARRANGEMENT

Ministry of Commerce

Supplementary Agreement No.2 on Mainland and Hong Kong Closer Economic Partnership Arrangement

Ministry of Commerce

October 18, 2005

In order to further increase the level of economic exchanges and cooperation between the mainland and Hong Kong Special Administrative
Region (hereinafter referred to as Hong Kong), and in accordance with Mainland and Hong Kong Closer Economic Partnership Arrangement
(CEPA) (hereinafter referred to as CEPA) signed on June 29, 2003, Appendix of CEPA signed on September 29, 2003 and Supplementary
Agreement of CEPA signed on October 27, 2004, both sides decide to subscribe this Agreement on mainland’s expanding opening for Hong
Kong for trade in goods and trade in services fields.

1.

Trade in Goods

(1)

As of January 1, 2006, Mainland implements Zero Tariff for imported Goods of Hong Kong Origin. The Zero Tariff goods shall accord
with the standards of place of origin negotiated and settled by both sides.

The standards of place of origin of goods of Hong Kong Origin have been settled by both sides is listed in the Appendix 1 of this
Agreement, which is the supplement of Chart 1 in Appendix 2 of CEPA.

Both sides decided to amend the specific measures in Article 5 in Appendix 1, namely About the Implementation of Zero Tariff of Trade
in Goods, of CEPA to:

I. Submission

A.

As of January 1, 2006, manufacturing enterprises in Hong Kong could submit detailed list of goods that enjoy zero tariff to Industry
and Trade Department.

B.

Hong Kong Industry and Trade Department shall submit the lists, after verification and cognizance of the Hong Kong SAR government,
to Ministry of Commerce before March 1 and September 1 annually.

II. Negotiation and Promulgation

After the cognizance of Ministry of Commerce, the list shall be transferred to General Administration of Customs, where negotiation
will take place with Hong Kong Industry and Trade Department about the standards of place of origin of the goods. The negotiation
shall be terminated before June 1 and December 1 annually, with adding the standards of place of origin of the goods to Chart 1 in
Appendix 2 of CEPA and making promulgation.

III. Implementation

The mainland shall qualify the zero-tariff-import of goods according to CEPA, based on the Certificate of Place of Origin issued by
Hong Kong license institutions, no later than July 1 of the year or January 1 of the next year.

(2)

Amend the content in Article 5 in Appendix 2, namely About the Rules on Place of Origin of Trade in Goods, of CEPA to:

” V. In Item 2 of Article 2 of the Appendix, the cognizance standards of “substantial processing” shall adopt following standards
agreed by both sides:

I. The cognizance of “substantial processing” could adopt “manufacturing or processing procedure”, “change of tax code”, “ad valorem
percent”, “other standards” and “mixed standards”.

A.

Manufacturing or processing procedure means the main manufacturing or processing procedure, conducted in the boundary of one side,
that provides the fundamental features of the goods after the procedure.

B.

Change of tax code means that after processing in the boundary of one side, the outcome of the non-single-side material of origin
changes the four-digit tax classify, and shall no longer change the four-digit tax classify in any other country or region to produce,
process or manufacture.

C.

Ad valorem percent could be calculated in the following formula:

(Value of Raw Material + Value of Component Parts + Value of Labor + Payment Value of Product Development) / FOB Value of Exporting
Finished Products*100% ￿￿0%

D.

Other standards means other substantial processing methods agreed by both sides, besides the above-mentioned “manufacturing or processing
procedure”, “change of tax code”, “ad valorem percent.

E.

Mixed standards means use two or more standards to settle the place of origin.

II. Other additional conditions.

When the above-mentioned “substantial processing” standards are not enough for settling the place of origin, other additional conditions
could be adopted with the consensus of both sides.

2.

Trade in services

(1)

As of January 1, 2006, on the basis of CEPA and Supplementary Agreement of CEPA commitment on opening up service trade, condition
on market access will be further loosened on fields like law, accounting, audiovisual, construction, distribution, banking, tourism,
transportation, individual owned businesses. See Appendix 2 for details.

(2)

Appendix 2 of this Agreement is the supplement and amendment of Chart 1 of Appendix 4 in CEPA and Appendix 3 of Supplementary Agreement
of CEPA. Any conflict occurs, please subject to Appendix 2 of this Agreement.

(3)

Service provide in Appendix 2 of this Agreement shall be in line with relative regulations mentioned in Appendix 5 of CEPA.

3.

Financial Cooperation

(1)

The mainland allows qualified innovative experimental Security Company in mainland to set up, under relative requirements, branches
in Hong Kong.

(2)

The mainland allows qualified Futures Company to operate futures business, including setting up branches, in Hong Kong.

4.

Appendix:

The Appendix shall be considered as part of the Agreement.

5.

Take Effect

This Agreement shall take effect as of the date of formal subscription of both sides.

This Agreement is written in the Chinese languages in duplicate.

This Agreement was signed on October 18, 2005, Hong Kong.

Vice Minister of Ministry of Commerce of PRC

Financial Secretary of Hong Kong Special Administrative Region of PRC



 
Ministry of Commerce
2005-10-18

 






REPLY OF THE STATE ADMINISTRATION OF TAXATION ON RELEVANT ISSUES CONCERNING THE TAX REFUND ON REINVESTMENT BY FOREIGN INVESTORS

the State Administration of Taxation

Reply of the State Administration of Taxation on Relevant Issues concerning the Tax Refund on Reinvestment by Foreign Investors

Guo Shui Han [2005] No.989

The Administration of State Taxation of Zhejiang Province:

The Request for Instructions on Defining the Tax Refund Conditions on Reinvestment by Foreign Investors (Zhejiang Shui Wai [2005]
No.48 ) and the Letter of Transmitting Regulatory Documents (Zhejiang Fu Gui Zhuan Zi [2005] No.02 ) of your administration have
been received. We hereby make the following reply on the relevant issues concerning tax refund enjoyed by foreign investors of foreign-funded
enterprises for reinvestment:

The reinvestment as mentioned in Article 10 of the Income Tax Law of the People’s Republic of China on Foreign-funded Enterprises
and Foreign Enterprises (hereinafter referred to as the Tax Law) shall mean that an foreign investor uses the profits obtained from
an foreign-funded enterprise to reinvest directly in the enterprise or any other foreign-funded enterprise, or to increase the registered
capital of the enterprise or any other foreign-funded enterprise, or to establish any other foreign-funded enterprise with investment.
If, according to the stipulations of any contract or agreement, these reinvestments need to be carried out by stages and step by
step, the tax refund may be determined in light of the following conditions:

I.

Where the application of a foreign investor for making reinvestment with the profit of the foreign-funded enterprise is approved
by the relevant departments of the State, and the profit for the reinvestment has been realized, the tax refund on reinvestment shall
be granted at the occurrence of the reinvestment according to law, no matter it makes the reinvestment in a lump sum or by installments.

II.

Where the application of a foreign investor for making reinvestment with the profit of the foreign-funded enterprise is approved by
the relevant departments of the state, if none or only part of the profit for the reinvestment has been realized, but the investor
promises to make reinvestment with the profit realized in future years, the reinvestment shall be used to make up the registered
capital of the enterprise, and does not fall within the provisions of “increasing registered capital or establishing other foreign-funded
enterprises as capital investment” in the Tax Law, and it may not enjoy tax refund on the reinvestment at the occurrence of the reinvestment.

State Administration of Taxation

October 20, 2005



 
the State Administration of Taxation
2005-10-20

 






NOTICE OF THE STATE ADMINISTRATION OF FOREIGN EXCHANGE ON RELEVANT ISSUES CONCERNING THE IMPROVEMENT OF THE MANAGEMENT OF FOREIGN EXCHANGE






Notice of the State Administration of Foreign Exchange on Relevant Issues concerning the Improvement of the Management of Foreign
Exchange

Hui Fa [2005] No. 74
October 21, 2005

State Administration of Foreign Exchange branches and foreign exchange administration offices in all provinces, autonomous regions
and municipalities under direct administration of the central government, State Administration of Foreign Exchange branches in Shenzhen,
Dalian, Qingdao, Xiamen and Ningbo, and designated Chinese-funded foreign exchange banks:

Notice is hereby given on relevant issues for the purposes of promoting the reasonable and orderly utilization of foreign investment
and improving the management of external debt pursuant to the Regulations on the Foreign Exchange System of the People’s Republic
of China, the Interim Provisions for Statistic and Supervision of External Debts, the Interim Measures on the Management of External
Debts and other related laws, regulations and rules.

I.

Deferred Payments of above 180 (included) Days and Equivalent to 200 (included) Thousand U.S. Dollars of Domestic Institutions shall
be under the External Debt Registration Management System

As for the import contracts newly concluded by domestic institutions as of December 1, 2005, in case that the unpaid foreign exchange
thereof amounts to more than 200 (included) million U.S. Dollars, and the agreed or actual deferred payment time limit is of 180
(included) days, the import enterprises shall, within 15 work days after customs declaration, go to the local State Administration
of Foreign Exchange branch bureaus (hereafter referred to as foreign exchange bureaus) to go through the registration of the deferred
payments and to draw down the Form of External Debt Contract-signing Situations. With regard to such deferred payments as meet the
aforesaid requirements, the banks shall handle the payment under import by dint of the Form of External Debt Contract-signing Situations
and the related foreign exchange payment bill under import, and the foreign payments shall not exceed the principal and interest
registered in the Form of External Debt Contract-signing Situations.

Where the foreign exchange bureaus handle for the applicant enterprises the deferred payment external debt registration, they shall
examine and verify whether their balance of deferred payment exceeds the amount authorized by the foreign exchange bureaus. Unless
otherwise provided for herein, the amount of enterprises’ deferred payment shall be appraised and decided by the local foreign exchange
bureaus with reference to 10% of the total amount of import payment of the enterprises concerned in the prior year. Large-scale complete
set of equipment, long-term supply contract and other import trade credit where exists special requirement, and the deferred payment
amount of the newly-established enterprises shall be separately appraised and decided by the local foreign exchange bureaus annually
in accordance with the actual demand of the enterprises, and shall be filed with State Administration of Foreign Exchange for records.

Such deferred payments as have gone through external debt registration in accordance with the aforesaid provisions may not be required
to go through the deferred payment of foreign exchange procedures in accordance with provisions in Notice on Relevant Issues concerning
Strengthening the Management of Deferred Payment of Foreign Exchange in Imports (Hui Fa [2005] No.8).

The foreign exchange bureaus of where the enterprises are located shall be filed with the Specification Form of Repayment of Principal
and Interest under Deferred Payment (please refer to Annex I) from the banks concerned within 10 work days in the beginning of every
month.

II.

Regulating the Management of External Debts of Special Enterprises with Foreign Investment

1.

Where the ratio of investment of foreign investors accounts for less than 25% in enterprises with foreign investment, the contracting
of external debts of the enterprises hereof shall be handled in accordance with related provisions applicable to their domestic Chinese-funded
counterparts.

Such aforesaid enterprises as have gone through external debt registration in the foreign exchange bureaus before the effectuation
of this notice may go to the foreign exchange bureaus to go through the authorization procedures for the repayment of principal and
interest.

2.

With regard to the enterprises with foreign investment whose aggregate investment approved by authorities in charge equals to the
registered capital or whose aggregate investment has not been clearly defined, they shall apply to the aforesaid authorities to reappraise
the aggregate investment and registered capital, and the borrowing of external debts shall be conducted in accordance with the managing
principle of “Investment Balance”.

3.

The external debt scale of foreign-invested holding companies shall be managed in accordance with the principle as follows:

With regard to those whose registered capital is not less than 30 million U.S. Dollars, the short-term external debt balance plus
the accumulative amount of mid-and-long-term external shall not exceed four times amount of the paid-up registered capital; with
regard to those whose registered capital is not less than 100 million U.S. Dollars, the short-term external debt balance plus the
accumulative amount of mid-and-long-term external shall not exceed six times amount of the paid-up registered capital.

4.

In accordance with Measures for the Administration of Foreign-funded Lease Industry promulgated by the Ministry of Commerce, the total
risk assets of the foreign-funded lease companies (total risk assets=total assets-cash-bank deposit-national debt-entrusted lease
capital) shall not exceed ten times amount of their total net assets. All the capitals arising from foreign-funded lease companies’
borrowing external debts shall be regarded as risk assets.

Where the foreign exchange bureaus handle applications of registration and settlement of foreign exchange from the foreign-funded
lease companies, they shall strictly examine and verify the statement of assets and liabilities and related data audited by accounting
firms and provided by the companies hereof, and shall calculate the percentage of risk assets accounting for against the net assets.
With regard to those going beyond the aforesaid provisions, both the registration and settlement of external debts shall be rejected.

Where the aforesaid enterprises raise loans under external guarantee, and if the performance of external guarantee occurs, the volume
of performed guarantee shall be under the control scale of external debts.

III.

Where the domestically registered transnational corporations conduct concentrated operation of capital, and if the capitals they absorb
from external affiliated companies are used within the territory of China, they shall be under the management of external debts.

IV.

Regulating the Management of External Guarantee under Domestic Loan

1.

In case of receiving external guarantee under domestic loans, the case-by-case registration by the debtors shall be changed to the
periodical registration by the debtees. Where the domestic financial institutions grant domestic and foreign currency loans, if receiving
guarantees form external institutions or individuals (including the undue or need-be-renewed guarantee when this notice is promulgated,
hereinafter referred to as external guarantee), the domestic financial institutions hereof shall, within 10 work days in the beginning
of every month, fill in and submit to the local foreign exchange bureaus the Registration Form of the Loans under External Guarantees
and the Performance Situations (please referred to Annex Table 2). The guaranteed person may not refer to the case-by-case method
henceforth.

2.

The external guarantee under domestic loans shall be under the management of external debts on the basis of the performed amount instead
of the contracted amount. In case that the performance of external guarantee occurs while receiving the external guarantee, the debtors
shall, within 15 days after the performance date, go to the local foreign exchange bureaus to go through the external debt registration
procedures, and their external debt scale shall be managed in accordance with the principle as follows:

The enterprise’s mid-long-term accumulative external debt amount plus the short-term external debt balance and plus the performed
amount by the external institutional and individual guarantors (calculated on the basis of the balance of the debtor’s exterior liabilities),
shall not exceed the minus between the aggregate investment and the registered capital (hereinafter referred to as “Investment Balance”).

3.

In case of such loans under external guarantee as contracted before the effectuation of this Notice, in conformity with the scope
of parties and guaranteed objects prescribed in the Notice of the State Administration of Foreign Exchange on the Work of Authorization
of Short-term External Debt Quotas of Foreign-invested Banks within the Territory of China in the Year of 2005 (Hui Fa [2005] No.4)
and the Supplementary Notice of the State Administration of Foreign Exchange on Relevant Issues concerning the RMB Loans under Foreign
Exchange Guarantee (Hui Fa [2005] No.26), the debtors may, after the performance of guarantee, go to the local foreign exchange bureaus
to register the external debts, and this performed amount may be left out of the “Investment Balance” of the debtors hereof.

4.

Where the domestic Chinese-funded enterprises within the territory of China borrow money from the domestic financial institutions,
they shall not accept the guarantees offered by external institutions or individuals without the approval of the State Administration
of Foreign Exchange.

V.

All designated foreign exchange banks shall, in accordance with the related provisions in the Notice of the State Administration of
Foreign Exchange on the Improvement of Works of Screening the Capital Item Structures of Enterprises with Foreign Investment and
the External Debt Registration Management, carefully examine and verify and handle the statutory capital and the settlement of foreign
exchange of the external debts. With regard to the one-time settlement of foreign exchange amount exceeding 200 (equivalent) thousand
U.S. Dollars, the banks may, in accordance with the enterprise’s Application for Settlement of Foreign Exchange and Written Payment
Order (the Settlement of Foreign Exchange Authorization Certificate issued by the foreign exchange bureaus shall be examined in the
settlement of foreign exchange of external debt), transfer the settled RMB capital to the RMB account of the enterprise hereof as
a temporary transition, and pay it to the final receiver within 2 work days.

VI.

The foreign exchange bureaus of all levels shall carefully fulfill their management responsibilities, analyze in time the change of
external debts with their jurisdictions, and pay attention to strengthening on-the-spot and non on-the-spot checks. Where such domestic
enterprises as have not go through the registration of deferred payment external debts repay principal with interest to the exterior,
they shall first go to the foreign exchange bureaus to go through the re-registration procedures, and they shall be punished after
the foreign exchange bureaus re-register their external debts. In case of banks and enterprises’ breach of the external debt provisions,
they shall be punished in accordance with the Regulations on the Foreign Exchange System of the People’s Republic of China and the
Interim Measures on the Management of External Debts.

VII.

This Notice shall enter into force as of December 1, 2005. This Notice shall prevail in the event of any inconsistency between the
previous documents and this Notice.

Annex Tables:

1.

Specification Form of Repayment of Principal and Interest under Deferred Payment

2.

Registration Form of the Loans and the Performance Situations under External Guarantees




Annex Table I

￿￿


Annex
Table 1

Specification
Form of Repayment of Principal and Interest under Deferred Payment

￿￿

￿￿￿￿Name
of Bank (Seal)￿￿                                             

￿￿￿￿Contact
Person & Telephone￿￿                             

Serial
Number of External Debt

Name
of Imported

Commodities

Area
Code

Date
of Payment

Repayment
of Principal

Amount
of Paid

Interest

Currency

Amount
of Unpaid Principal

Remark

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

￿￿￿￿Operator￿￿￿￿￿￿￿￿￿￿￿￿￿￿￿￿ Examiner￿￿￿￿￿￿￿￿￿￿￿￿￿￿ Date of Submission￿￿               

￿￿￿￿N.B.: The Specification Form of Repayment of Principal and
Interest under Deferred Payment as newly occurred in the prior month shall,

within 10 work days in the beginning of every month, be submitted to the local
Branch Bureau in paper and electronically.

￿￿


Annex Table 2


Registration
Form of the Loans under External Guarantees and the Performance Situations 

          
(m/y)

 

￿￿￿￿Name
of Domestic Financial Institution:                         

           

￿￿￿￿Contact Person &
Telephone￿￿ ￿￿￿￿￿￿￿￿￿￿￿￿￿￿￿￿￿￿￿￿
￿￿  

￿￿￿￿Registration
Number￿￿                                                          

     






Serial

 Number

Debtor

Location

 of 

Registration

Code

of

 Enterprise

Investmen

Balance

Amount

of

 Loan

Currency

External

 Guarantor

Location

of

Registration

Mode

of

Guarantee

Guaranteed

 Amount

Currency

Guarantee

Performance

Remark

 

 

 

 

 

 

 

 

 

 

 

 

 

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CIRCULAR OF THE STATE ADMINISTRATION OF FOREIGN EXCHANGE ON RELEVANT ISSUES CONCERNING FOREIGN EXCHANGE ADMINISTRATION OF FINANCING AND RETURN INVESTMENT UNDERTAKEN BY DOMESTIC RESIDENTS THROUGH OVERSEAS SPECIAL-PURPOSE VEHICLES

the State Administration of Foreign Exchange

Circular of the State Administration of Foreign Exchange on Relevant Issues concerning Foreign Exchange Administration of Financing
and Return Investment Undertaken by Domestic Residents through Overseas Special-Purpose Vehicles

Hui Fa [2005] No. 75

October 21, 2005

The branches and foreign exchange administration departments of the State Administration of Foreign Exchange of all provinces, autonomous
regions, and municipalities directly under the Central Government, and the municipal branches of the State Administration of Foreign
Exchange in Shenzhen, Dalian, Qingdao, Xiamen and Ningbo:

With a view to giving encouragement, support and guidance to the development of economy of non-public sectors, further improving the
policy support system for venture investments, standardizing cross-border capital transactions of the investment and financing activities
undertaken by domestic residents through overseas special-purpose vehicles, and in accordance with the Regulations of the People’s
Republic of China on Foreign Exchange Administration, the Measures for the Foreign Exchange Administration of Overseas Investments
and the Interim Provisions for Foreign Investors to Merge and Acquire Domestic Enterprises, you are hereby notified of the relevant
issues concerning the foreign exchange administration of the equity financing and return investment undertaken by domestic residents
via overseas special-purpose vehicles:

I.

The “special-purpose vehicle” as mentioned in this Circular refers to an overseas enterprise directly established or indirectly controlled
by a domestic resident legal person or domestic resident natural person for the purpose of undertaking equity financing (including
convertible bond financing) abroad with the enterprise assets or rights and interests it/he holds inside China.

The “return investment” as mentioned in this Circular refers to the direct investment activities made within the territory of China
by a domestic resident via a special-purpose vehicle, including but not limited to the following ways: acquisition or replacement
of the equity of the Chinese party of a domestic enterprise, establishment of a foreign-funded enterprise inside China and acquisition
or agreement-based control of assets inside China via the above-mentioned enterprise, agreement-based acquisition of assets inside
China and establishment of a foreign-invested enterprise with the investment of acquired assets, and capital increase to a domestic
enterprise.

The “domestic resident legal person” as mentioned in this Circular refers to an enterprise or public institution legal person or other
economic organization legally established in China; the “domestic resident natural person” refers to a natural person who holds a
resident identity card of the People’s Republic of China, a passport or other lawful identity certificate, or a natural person who
has no legal identity in China but habitually resides in China due to reasons of economic interests.

The “control” as mentioned in this Circular refers to the acts whereby a domestic resident obtains the rights to operate, benefit
from and make decisions on a special-purpose vehicle or a domestic enterprise by means of acquisition, trusteeship, holding shares
on behalf of others, voting rights, repurchase, convertible bonds, etc.

II.

Before establishing or controlling an overseas special-purpose vehicle, a domestic resident shall bring the following materials to
the local branch or foreign exchange administration department of foreign exchange (hereinafter referred to as “foreign exchange
office”) to apply for foreign exchange registration for overseas investment:

(1)

A written application (which shall go into detail about the basic information of the domestic enterprise, the equity structure of
the overseas special-purpose vehicle, and the overseas financing arrangements);

(2)

The documents on registration of the domestic resident legal person in China, or the identity certificate in the case of a domestic
resident natural person;

(3)

The business plan on overseas financing;

(4)

The official reply on ratification of the sources of the domestic resident legal person’s foreign exchange capital (assets), and the
approval document as issued by the competent department of overseas investment;

(5)

The “Foreign Exchange Registration Certificate for Overseas Investment” filled in by the domestic resident legal person, or the “Foreign
Exchange Registration Form for Overseas Investment of the Domestic Resident Individual” filled in by the domestic resident natural
person (see annex);

(6)

Other certification materials on authenticity.

The foreign exchange office shall stamp the Foreign Exchange Registration Certificate for Overseas Investment or the Foreign Exchange
Registration Form for Overseas Investment of the Domestic Resident Individual with the seal for foreign exchange transactions under
capital account after the aforesaid materials are found in order.

III.

Where a domestic resident injects the assets or equities of a domestic enterprise it owns into a special-purpose vehicle, or undertakes
equity financing abroad after injecting assets or equities into a special purpose vehicle, it shall go through the formalities for
the alteration of foreign exchange registration for overseas investment in respect of the net assets and equities of the special-purpose
vehicle it holds and the variations thereof, and shall provide the following materials at the same time:

(1)

A written application (which shall go into detail about the changes of the shareholders and equities of the domestic enterprise and
the special-purpose vehicle and the way of pricing the assets or equities thereof);

(2)

The Foreign Exchange Registration Certificate for Overseas Investment filled in by the domestic resident legal person, or the Foreign
Exchange Registration Form for Overseas Investment of the Domestic Resident Individual” filled in by the domestic resident natural
person;

(3)

The documents issued by the competent department of foreign investment on the ratification and filing of the return investment;

(4)

The documents issued by the state-owned assets administration department on the confirmation of the value of the domestic enterprise’s
assets or equities are required in case any state-owned asset is involved;

(5)

The special-purpose vehicle’s registration certificate, business license and other certification, which are valid abroad;

(6)

Other certification materials on authenticity.

IV.

The domestic resident may, according to the fund use plan as stated in the business plan or the prospectus, repatriate the funds,
which ought to be arranged for use in China, after the special-purpose vehicle accomplishes overseas financing.

V.

In case a special-purpose vehicle uses the funds raised from overseas financing for return investment or provides shareholder’s loans
or other debt capital to a domestic enterprise, the relevant domestic enterprise shall go through the relevant formalities concerning
foreign exchange administration according to the current laws and regulations on the administration of foreign debts and foreign
exchange. The foreign exchange office shall, when registering the establishment or alteration of a foreign-funded enterprise, foreign
debts, or the foreign exchange capital earnings of a special-purpose vehicle through equity transfer, examine and check the Foreign
Exchange Registration Certificate for Overseas Investment or the Foreign Exchange Registration Form for Overseas Investment of the
Domestic Resident Individual.

VI.

A domestic resident may, after going through the formalities for foreign exchange registration of overseas investment or for alteration
thereof as required, pay the special-purpose vehicle the profits, dividends and the expenses for liquidation, equity transfer, capital
decrease, etc.

The profits, dividends and foreign exchange income from capital changes, which are gained by a domestic resident from a special-purpose
vehicle, shall be repatriated to China within 180 days as of the day when they are gained. The profits or dividends may be either
entered into the account for foreign exchange transactions under current account or put under foreign exchange settlement; the foreign
exchange income from capital changes may, upon approval of the foreign exchange office, be either saved in the special account for
capital account transactions, or put under foreign exchange settlement.

VII.

Where a special-purpose vehicle is involved in the capital increase or decrease, transfer or replacement of equity, merger or division,
investment with long-term equities or credits, provision of guarantee to a foreign party or other major events, which requires capital
alteration and involves no return investment, the domestic resident shall, within 30 days as of the day when the major event happens,
apply to the foreign exchange office for going through the formalities for alteration or filing of the foreign exchange registration
for overseas investment.

VIII.

Where a domestic resident has established or controlled a special-purpose vehicle abroad and has made the return investment prior
to the implementation of this Circular, but fails to go through the formalities of foreign exchange registration for the overseas
investment as required, it shall, pursuant to this Circular, make up the foreign exchange registration for overseas investment in
the local foreign exchange office by March 31, 2006. After the domestic resident has made up the formalities of foreign exchange
registration for overseas investment, the foreign exchange office may handle the foreign exchange registration for foreign investments
or foreign debts for the relevant domestic enterprises.

IX.

A domestic venture investment enterprise may establish a special-purpose vehicle abroad and undertake venture investment activities
with reference to this Circular.

X.

If several domestic residents are involved in the same administrative matter as mentioned above, they shall authorize 1 or 2 domestic
residents of them to go through the relevant formalities on foreign exchange administration by issuing the power of attorney.

XI.

Any other matter not covered in this Circular shall be subject to the current regulations on foreign exchange administration of foreign
investment and overseas investment.

XII.

Any domestic resident who violates the provisions in this Circular and constitutes foreign exchange evasion or violates other rules
on foreign exchange administration, the foreign exchange, shall be punished by the foreign exchange office in accordance with the
Regulations of the People’s Republic of China on Foreign Exchange Administration and other relevant provisions.

XIII.

This Circular shall go into effect as of November 1, 2005. The “Circular on the Relevant Issues concerning Improving Foreign Exchange
Administration for Merger and Acquisition with Foreign Investments” (Hui Fa [2005] No. 11) and the “Circular on Relevant Issues concerning
Registration of Overseas Investments Made by Domestic Resident Individuals and Foreign Exchange Registration of Merger or Acquisition
with Foreign Investments” (Hui Fa [2005] No. 29) shall be repealed simultaneously.

Annex:Foreign Exchange Registration Form of Overseas Investment of the Domestic Resident Individual(omitted)

 
the State Administration of Foreign Exchange
2005-10-21

 



CIRCULAR OF NDRC, MII, SAT, GAC ON PRINTING AND DISTRIBUTING MEASURES FOR THE ADMINISTRATION OF ACCREDITATION OF THE INTEGRATED CIRCUIT ENTERPRISES ENCOURAGED BY THE STATE (FOR TRIAL IMPLEMENTATION)

National Development and Reform Commission, Ministry of Information Industry, State Taxation Administration, General Administration
of Customs

Circular of NDRC, MII, SAT, GAC on Printing and Distributing Measures for the Administration of Accreditation of the Integrated Circuit
Enterprises Encouraged by the State (for Trial Implementation)

Fa Gai Gao Ji [2005] No. 2136

The development and reform commissions and the economic commissions (economic and trade commissions), authorities in charge of information
industry, state tax bureaus, local tax bureaus and customs of all provinces, autonomous regions, municipalities directly under the
central government, municipalities separately listed in the state plan,:

In order to implement Several Policies concerning Encouraging the Development of Software Industry and Integrated Circuit (Guo Fa
[2000] No.18) and its supporting preferential policies, to standardize the accreditation of integrated circuit enterprises encouraged
by the State, Measures for the Certified Administration of the Integrated Circuit Enterprises Encouraged by the State (for Trial
Implementation) is hereby given to you for observing hereof and doing well the relevant work.

Appendix: Measures for the Administration of the Integrated Circuit Enterprises Encouraged by the State (for Trial Implementation)

National Development and Reform Commission

Ministry of Information Industry

State Taxation Administration

General Administration of Customs

October 21, 2005 Appendix:Measures for the Administration of Accreditation of the Integrated Circuit Enterprises Encouraged by the State (for Trial Implementation)

Article 1

In order to make enterprises enjoy preferential policies in Several Policies concerning Encouraging the Development of Software Industry
and Integrated Circuit (Guo Fa [2000] No.18) (hereinafter referred to as Several Policies) and its supporting policies and to accelerate
the development of China’s integrated circuit industry, the Measures is hereby formulated in accordance with Article 49 of Several
Policies and the relevant provisions.

Article 2

Integrated circuit enterprises as mentioned in the Measures refers to organizations with independent legal person qualification which
are established lawfully within China’s territory (with Hong Kong, Macao and Taiwan excluded) and involved in the manufacture, packaging,
testing of integrated circuit chip and the manufacture of silicon single crystal with its size no less than 6 inches, with the integrated
circuit design enterprises excluded.

Article 3

The National Development and Reform Commission, the Ministry of Information Industry, the State Taxation Administration and the General
Administration of Customs constitute the competent departments responsible for the accreditation and administration of national integrated
circuit enterprises (hereinafter referred to as competent departments). Its responsibilities include￿￿

(i)

Organizing the integrated circuit enterprises accreditation authorities (hereinafter referred to as accreditation authorities) to
carry out accreditation;

(ii)

Supervising and checking the accreditation of national integrated circuit and auditing its accreditation results; and

(iii)

Accepting the opposition appeal of determined results, annual inspection results as well as the relevant accreditation decision.

Article 4

The competent departments shall jointly entrust China Semiconductor Industry Association to act as the accreditation authority, responsible
for the accreditation and annual inspection of integrated circuit enterprises. Its responsibilities include:

(i)

Accepting the accreditation application of integrated circuit enterprises;

(ii)

Organizing the accreditation of integrated circuit enterprises and raising accreditation advice; and

(iii)

Taking charge of the annual inspection of integrated circuit enterprises and submitting the result to the competent departments.

Article 5

Such integrated circuit enterprises as apply for its accreditation shall meet the following conditions:

(i)

Judicial entity which is lawfully established and engaged in the manufacture, packaging and testing of integrated circuit and the
manufacture of silicon single crystal material with its size no less than 6 inches;

(ii)

Meeting basic conditions such as production size, software and hardware as well as personnel geared to integrated circuit manufacture,
its production procedures and management standard being in line with the basic flow of integrated circuit production and having the
means and capacity to meet production;

(iii)

The sales income of self-production (including agent processing) accounting for more than 60% of the total income of the same year
(the newly enterprises excluded); and

(iv)

The relevant competent tax authorities having determined that the enterprises are free from such offences against the law as bad faith
tax arrears, tax dodging and fraud.

Article 6

The enterprises shall, in the process of applying for integrated circuit accreditation, submit relevant documents in accordance with
the accreditation enforcement regulations which shall be authentic and effective.

Article 7

The accreditation of the integrated circuit enterprises shall be applied by these enterprises to the accreditation authorities. The
accreditation shall be undertaken in accordance with the relevant enforcement regulations, and the accreditation opinion as well
as the relevant documents shall be raised to the competent departments within 15 working day.

The National Development and Reform Commission, the Ministry of Information Industry, the State Taxation Administration and the General
Administration of Customs shall give their approval or denial opinion in written form within 45 working days.

Article 8

The accreditation results shall be published in the website of the accreditation authority and the relevant media and shall be subject
to social supervision.

Article 9

The state implements annual inspection system upon the determined integrated circuit enterprises. The enterprise shall submit annual
inspection report to the accreditation authority and the latter shall submit the annual inspection opinion to be filed with the authorities
in charge.

Article 10

The enterprises shall, within the prescribed time limit, submit their annual inspection report to the accreditation authorities, those
failed to do so shall be deemed as waiving its accreditation qualification; the integrated circuit enterprises failing to pass the
annual inspection shall have its accreditation qualification canceled as of the ensuing year.

Article 11

Where such alterations as adjustment, separation, merger, restructure arise from the certified integrated circuit enterprise, the
enterprise shall, within 30 days as of the alteration decision being made, handle its alteration accreditation or reapplication procedure
in the original accreditation agency. The enterprise without the accreditation from the National Development and Reform Commission
and the relevant authorities shall have its accreditation qualification canceled and have its enjoying preferential policy ceased.

Article 12

Where such offences against the law as tax evasion are discovered, the accreditation qualification of the enterprise shall be canceled
after the verification, with its enjoying preferential policies being ceased at the same time.

Article 13

Where such a enterprise as provided faked documents in the process of applying integrated circuit enterprises is discovered, its accreditation
application shall be ceased; where it is ascertained, the accreditation qualification of the integrated enterprise shall be cancelled
and thereby be exposed to the public, with the reduced and exempted sum being retrieved; the accreditation authorities shall not
handle the application hereof within three years.

Article 14

The certified integrated circuit enterprise shall hold the accreditation issued jointly by the authorities in charge to handle procedures
for preferential policies.

Article 15

The Measures shall be interpreted by the National Development and Reform Commission, the Ministry of Information Industry, the State
Taxation Administration and the General Administration of Customs.

Article 16

The Measures shall be enforced as of the date of its printing and issuing.

 
National Development and Reform Commission, Ministry of Information Industry, State Taxation Administration, General
Administration of Customs
2005-10-21

 



ANNOUNCEMENT OF OPEN MARKET BUSINESS

Announcement of Open Market Business

[2004] No.1

For the purpose of supporting the demand for payment fluidity of commercial banks before the festival, the People’s Bank of China
determined to carry out exclusive operation of reverse repurchase in the American mode of interest rate bidding toward 43 primary
dealers on this Friday (January 16). The bidding volume is 40 billion Yuan, the duration is 14 days, the method of liquidation is
T+0, and the time of bidding is at 11￿￿0-12￿￿0 am, January 16.

The Operating Office of the Open Market Business of the People’s Bank of China

January 16, 2004



 
The Operating Office of the Open Market Business of the People’s Bank of China
2004-01-16

 






CIRCULAR ON ISSUES CONCERNING SORTING OUT AND CHECKING THE PREFERENTIAL TAX POLICIES OF DEVELOPMENT ZONES

State Administration of Taxation

Circular on Issues concerning Sorting out and Checking the Preferential Tax Policies of Development Zones

GuoShuiFa [2004] No. 9

January 16th, 2004

The administrations of state taxation and local taxation of all provinces, autonomous regions, municipalities directly under the Central
Government, and cities directly under state planning:

In recent years, there have been, in some regions, issues of formulating preferential tax policies in excess of authority and of implementing
them in violation of regulations, and of deducting or exempting taxes arbitrarily in the construction of development zones, and the
issue is more serious in a few regions. With a view to strengthening and regulating taxation administration on development zones,
firmly putting down and correcting issues of tax deduction or exemption in excess of authority, and maintaining the dignity and unification
of the state tax law, so as to ensure the orderly construction of development zones and promote the healthy development of socialist
market economy, the State Administration of Taxation determines to sort out and check the preferential tax policies of development
zones according to the relevant provisions of the State Council, and hereby makes the following Circular on the relevant issues:

I.

The scope of sorting out and checking the preferential tax policies

1.

The economic and technological development zones, coastal economic opening zones, high and new technology industrial development zones
and other state-level gardens and zones established upon the approval of the State Council;

2.

The various development zones established upon the approval of the provincial governments; and;

3.

The various development zones established by all levels of governments themselves under the provincial level.

II.

Contents of sorting out and checking the preferential tax policies

1.

Whether, in the development zones established upon the approval of the State Council, there are issues of granting preference tax
on enterprises in excess of the provisions of the uniform policies of the state:

(1)

Whether an enterprise that enjoys preferential tax policies of development zones is registered in a development zone but operates
its business outside the zone;

(2)

Whether the preferential tax is granted to an enterprise whose qualifications as a “newly-established enterprise” hasn’t been examined
strictly; or

(3)

Whether there are issues of enlarging the scope of application for preferential tax policies, increasing preferential proportion,
or extending preferential terms without permission.

2.

Whether, in the various development zones established upon the approval of the provincial governments, there are issues of formulating
preferential tax policies of development zones in excess of the power of taxation administration, or issues of enjoying state-level
preferential tax policies of the development zones by reference. And

3.

Whether the various development zones established by all levels of governments themselves under the provincial level have any issue
of illegally formulating preferential tax policies and enjoying preferential tax policies of development zones of the state level
or provincial level by reference.

III.

Methods of sorting out and checking the preferential tax policies

The sorting out and checking of the preferential tax policies this time shall adopt methods of self-examination of the grass root
tax authorities and selective examination by the upper level tax authorities. Before the end of March of 2004, the tax authorities
of the cities (prefectures) or counties (districts) shall carry out self-examination and self-correction, which shall be checked
and accepted by the provincial tax authorities. In the April of 2004, the State Administration of Taxation shall make selective examinations
in the tax law enforcement inspection.

IV.

Requirements for the sorting out and checking of the preferential tax policies

1.

Improving understanding, earnestly strengthening the organization of and guidance to the work of sorting out and checking. It is an
important act to carry out the sorting out and examination on preferential tax policies of development zones for practicing the important
thought of “Three Represents”, sticking to the principle of “gathering money for the state, enforcing law for the people”, strengthening
taxation administration, rectifying and regulating taxation order, and meeting with the requirements of the WTO. The tax authorities
at all levels shall strengthen the concept of legal system and awareness to overall situation, strengthen organization and guidance
earnestly, implement the system of top leader responsibility, and carry out the sorting out and checking work earnestly under the
leadership of the departments of policy and regulation, with the coordination and cooperation of the relevant departments of taxation
policy, taxation collection administration, foreign affairs, checking or supervisions, etc. Going through the motions is strictly
prohibited in the sorting out so as to ensure the deepening of the inspection, and the downright sorting out, as well as getting
actual effect.

2.

Performing duties, earnestly checking on, and strictly implementing the uniform preferential tax policies of development zones of
the state. All levels of tax authorities shall immediately stop the enforcement of preferential tax policies of development zones
formulated by the local regions in excess of authority, and propose to the organs thereof that they correct them, if the correction
cannot be made temporarily, that shall be reported to the State Administration of Taxation level by level. Those preferential tax
policies of development zones that are implemented in violation of regulations shall be corrected resolutely, and the taxes unpaid
in the year 2003 shall be added to the original amount. Those enterprises that evade taxes or cheat in tax payment by availing themselves
of the preferential tax policies of development zones shall be investigated into and punished by putting them on records according
to law. In case the tax authorities fail to strictly implement the tax law, practice favoritism and malpractices, or are involved
in breach of duty or derelict of duty, the responsible persons and the persons directly liable shall be punished seriously in accordance
with the relevant provisions.

3.

All levels of tax authorities shall, according to the uniform disposition by the State Administration of Taxation, complete various
tasks of sorting out and checking the preferential tax policies, summarize them earnestly, and report the situations to the State
Administration of Taxation according to the facts. Each region shall report the summary of the work of sorting out and checking and
the statement thereof to the State Administration of Taxation (department of policies and regulations) before the end of March of
2004.

Annex: Statistical Form of the Situations on Sorting out and Checking the Preferential Tax Policies of Development Zones (Omitted)



 
State Administration of Taxation
2004-01-16

 






NOTICE OF THE STATE ADMINISTRATION OF TAXATION ON DEALING WITH TAX ISSUES IN RESPECT OF BAD DEBT LOSSES INCURRED BY FOREIGN-FUNDED ENTERPRISES ENGAGING IN TELECOMMUNICATION SERVICES

State Administration of Taxation

Notice of the State Administration of Taxation on Dealing with Tax Issues in Respect of Bad Debt Losses Incurred by Foreign-funded
Enterprises Engaging in Telecommunication Services

GuoShuiHan [2004] No.90

January 17, 2004

The administrations of state taxation of the provinces, autonomous regions, municipalities directly under the Central Government,
and cities directly under State Planning, and the Administration of Local Taxation of Shenzhen Municipality:

According to the information we receive, as a result of the fierce competition of the telecommunication industry and the lack of effective
measures for the control and recovery of defaulted fees, the foreign-funded enterprises engaging in telecommunication services have
incurred relatively large amounts of fees defaulted by the customers, and the defaulted sums are increasing every year. We hereby
notify as follows the relevant issues concerning dealing with the income tax in respect of the abovementioned fees defaulted by customers,
which can not be recovered:

1.

As of January 1, 2004, where a foreign-funded enterprise engaging in telecommunication industry is unable to recover the fees defaulted
by customers, whether previously or newly incurred, after one year as of the date of default, such defaulted sums may be dealt with
as the loss of bad debt, but payment for such loss shall be specified in the report form.

2.

Where the localities draw the provision for bad debt for telecommunication enterprises in accordance with Paragraph 1 of Article 9
of the Notice of the State Administration of Taxation on Several Operational Issues concerning the Implementation of the Law on
Income Tax of Foreign-funded Enterprises and Foreign Enterprises (GuoShuiFa [1991] No.165), such practice shall be stopped as of
January 1, 2004. The balance of the provision for bad debts drawn in the previous year shall be first used to set off the loss of
bad debts incurred in 2003. If there is any balance left after the set-off, such balance shall be included into the taxable income
of the current year.



 
State Administration of Taxation
2004-01-17

 






PROVISION OF MINISTRY OF FINANCE ON IMPROVING AND STRENGTHENING THE ADMINISTRATION OF ANNUAL ACCOUNTING STATEMENT AUDIT

Ministry of Finance

Provision of Ministry of Finance on Improving and Strengthening the Administration of Annual Accounting Statement Audit

Cai Qi [2004] No. 5

January 17, 2004

This provision of Ministry of Finance on Improving and Strengthening the Administration of Annual Accounting Statement Audit is re-promulgated
for the purpose of improving the quality of the accounting information of enterprises, giving full play of the social agency operations
in supervising financial and accounting of enterprises and of regulating the administration of annual accounting statement audit,
in accordance with Article 2 of Circular of the State Council on Improving Accounting Order and Quality of Accounting, after summarizing
the running situation of the audit system of certified public accountants(hereinafter refers to as CPA) examine the annual accounting
statements of the enterprises in the previous years and meeting the need of the access of WTO and reform and development of the enterprises.
The provision is now printed and disputed to you and shall be implemented.

After the implement of the Provision of the Ministry of Finance on Improving and Strengthening the Administration of Annual Accounting
Statement Audit, the Interim Measure of Ministry of Finance on State-Owned Enterprises Annual Accounting Statement Examined by the
CPA (Cai Jing Zi [1998] No.114), Circular of Ministry of Finance on State-Owned Enterprises Annual Accounting Statement Examined
by the CPA (Cai Qi [2000] No. 905) and Supplementary Circular of Ministry of Finance on SOE Annual Accounting Statement Examined
by the CPA (Cai Qi [2001] No. 707) shall be repealed at the same time. Annex:Provision of Ministry of Finance on Improving and Strengthening the Administration of Annual Accounting Statement Audit

Chapter I General Provisions

Article 1

This Provision is promulgated for the purpose of meeting the need of the development of the socialist market economy, improving the
quality of annual accounting statement of the enterprises and strengthening and improving the audit of the annual accounting statement
of the enterprises, in accordance with Provisions of the State Council on Improving Accounting Order and Quality of Accounting.

Article 2

This Provision shall be applied to all the SOE and the State-Equity-Control non- financial enterprises (hereinafter refers to as enterprises)
except the special enterprises listed in Article 3 within the territory of the People’s Republic of China.

Where another law provides otherwise in respect of the foreign-invested enterprises and the listing companies, such provisions prevail.

The audit of the annual accounting statement of enterprises that was established on the oversea-investment shall be run in accordance
with the relevant provisions of statute of domicile

Article 3

The system of CPA examining annual accounting statement shall not be applied to the following special SOE,

(1)

War industry enterprises, expect civil companies that has independent legal personality and that still retain or seal the capability
of producing war products

(2)

Reeducation-through-labor enterprises, reform-through-labor enterprises, border farm, agricultural enterprises of the Production and
Construction Corps of the Chinese Liberation Army and the reclamation area in Heilongjiang province

Article 4

The executive situation of special material reserve, special capital reserve and other operation related to special policies of enterprises
that responsible for goods and material reserve, grain reserve, cotton reserve or non-staple food reserve shall be subject to the
audit of the competent administrative authorities.

Article 5

Enterprises shall initiatively cooperate with CPA in examining the annual accounting statement and provide relevant information in
accordance with the contract. The enterprises shall guarantee the truthfulness of all the information and shall take the corresponding
accounting responsibility

Article 6

CPA and accounting firms shall finish the audit in accordance with the principle of Objective, Independent and Fair, the Independent
Audit Criteria and other related provisions. CPA and accounting firms shall make audit report according to the demands of contract,
and take corresponding responsibility

Chapter II General demands of the administration of annual accounting statement audit of enterprises

Article 7

The companies shall consign the audit in accordance with the decision of directorate or the manager administrative council.

Conglomerate shall unifiedly consign the audit of the annual accounting statement of its subsidiary companies.

Company which is still under the competent authorities shall consign the accounting firms to audit its accounting statement through
the authorities.

Article 8

Enterprises shall consign an accounting firm or alter the consignment before October, and shall sign a contract with the accounting
firm which declares audit scope, content, rights, obligations, price, payment and breach responsibility. The enterprises shall provide
relevant conditions to the accounting firms it consigned to finish the audit.

Article 9

The accounting statement of enterprises shall be audited by the Chinese CPA or the accounting firms that registered in the territory
of People’s Republic of China in accordance with the concerning regulations.

Enterprises shall take the assets sum, amount of subsidiary company, district distributing and business character into account and
consign the correspond accounting firm that has enough CPA, experience and audit capability.

All the enterprises shall not restrict the work of the accounting firm legally established. The departments, institutions that do
not pay for the audit, except the conglomerate, shall not require or incite the companies to consign certain accounting firms or
obstruct the consignment.

Article 10

Accounting firms that accept the consignment of the enterprises shall not transfer the consignment to other accounting firms after
the distribution. The audit that consigned by the enterprises shall be down by CPA of the accounting firms.

Article 11

Conglomerates shall consign one or more accounting firms to audit in accordance with the principles of fair, just open, choosing reasonable
and transparent modes like inviting public bidding and with specific administrative measure and procedure.

Article 12

Conglomerates shall confirm the leading accounting firm, cooperate with it to make an audit plan and organize the subsidiary companies
to execute the plan in the case of consigning more than one accounting firms to make a united-audit.

Article 13

Enterprises shall pay for the annual accounting statement audit in accordance with the principle of “consigner pay”.

The criteria of pay of the annual accounting statement of enterprises shall be set in accordance with the provisions promulgated by
the local competent authorities.

Article 14

Enterprises shall not change the consigned accounting firms in the previous financial year if the accounting firms conform to the
provisions of article 9 of the regulations, in which no offence against the discipline and regulations arise. In the case of necessary
change, the consignee shall give reasons and expose it.

The accounting firm with the requirement of the consignee company shall change the CPA that consigned by a certain company for 5 years
continuously.

Article 15

Enterprises shall not consign the annual accounting statement audit to the same accounting firm or the accounting firm that invested
by same investor that makes the asset evaluation or financial consultant service to the reform of the enterprises’ within the audit
year.

Article 16

Enterprises shall complete the formality of record to the competent authority before October 31 every year after signing the contract.
The enterprises under the direct control of central government shall put the record to the competent administration of Ministry of
Finance through the conglomerate. The enterprises under the control of local government shall put the record to the local financial
authority of the same level. The enterprises that still have relation with the government shall put the record to the competent financial
authority of the same level through the department in charge. The enterprises shall, in the course of completing the formality of
record, provide record report in which the reason of consigning and changing the accounting firm, the scope of audit, the mode of
consign, the payment criteria and such items were written, and shall fill the record form of annual accounting statement audit of
enterprise.( Enclosed in the appendix).

Chapter III Emphasis of annual accounting statement audit

Article 17

Conglomerate shall consign a complete annual accounting statement audit which including the subsidiary companies within the scope
of incorporate.

CPA shall audit in accordance with the relevant important provisions of the Independent Audit Criteria for the subsidiary companies
of the constituent or the 5-level subsidiary branches of certain special conglomerate of some industry.

Article 18

The annual accounting statement audit of enterprises shall include the audit of the separated accounting statements and merged accounting
statements

The separated accounting statement audited by the CPA shall include balance sheet, profit charts, cash-flow charts, appendix and annex
of the accounting statement promulgated in the Enterprises Accounting System. The merged accounting statement audited by the CPA
shall include the merged balance sheet, merged profit charts and profit distributing charts, merged cash-flow charts and annex of
accounting statement.

To the enterprises that still related to the government, the competent administrative authorities shall examine and collect the annual
accounting statements that audited by the CPA and the statements that have been audited may not be audited again.

Article 19

Enterprises shall compile annex of the accounting statements in accordance with the provision of Article 14 of Regulation on Report
of Enterprises’ Financial and Accounting Situation and shall provide, in time without any concealment and fabrication, the documents
and information on the accounting documents, accounting books, internal executive system, accounting policy, accounting mode, important
sale and purchase contract, important invest and financing contract, assets recombination, reform of the enterprises and other important
decisions that happened within the fiscal year of the annual accounting audit to the CPA.

Article 20

CPA and accounting firms shall audit the annual accounting statement of enterprises in accordance with the Independent Audit Criteria
and other related regulations, and shall pay special attention to the following listed items,

(1)

Accounts receivable, advances to suppliers, the yeas of other receivables and its main debtor, provisions for bad debts,

(2)

Inventory evaluation, provision for loss of inventory, inventory for more than 3 years

(3)

Main content of deferred assets and intangible assets, provision of amortization and provision for loss of intangible assets

(4)

Projects of long-term invest of equity, holding share, accounting methods, provision for loss and confirmation of loss of investment

(5)

Main types, depreciable life, appraisal method of depreciation and provision for loss of the fixed assets,

(6)

Main project and the investment situation of construction in progress, provision for loss of the construction in progress

(7)

Accounts payable, advances for customers, amount and creditors for more than 3 years

(8)

Items of taxation, tax ratio, amount of current year, annual balance, item of incoming tax change

(9)

Export refund declaration and result, policy of tax deduct and abatement, appropriation and using of the financial capital

(10)

Assets for securities, futures, exchange deal, confirmation of loss and profit and floatation of profit and loss

(11)

Adjustment reason and amount of undistributed profit at beginning of year, policy and executive situation of profit appropriation
and distribution

(12)

Contingent matters like provide cover, outstanding lawsuit and arbitration

(13)

Policy and executive situation of recombination of assets or credit, reform of enterprise, equity transaction and influence for annual
accounting statement

(14)

Wage system, situation of establishing, and execution of housing, medical care and aged providing.

(15)

Competent authorities and other items consigned by the consignee

Chapter IV Administration of Annual Accounting Statement Audit of Enterprise

Article 21

Enterprises that was made audit report that has reservation, no opinion or deniable opinion shall expatiate the altered items at the
beginning of the year or the information of adoption of the audit advice to the CPA that audit the accounting statement and shall
provide relevant information

Article 22

CPA shall report and require enterprises to alter the incorrectness and mistake in accounting that found out in auditing in accordance
with the relevant provisions.

CPA shall reflect in his report the exposition of the affiliated notes to the annual accounting statements of enterprises, especially
the demurral of items listed in Article 19 , or the enterprises did not alter according to the audit advice, or the other important
items.

Article 23

In the case the enterprise do not provide necessary financial and accounting materials or other relevant materials, or do not give
enough cooperation resulting in that audit can not be made normally as scheduled, CPA shall handle the situation in accordance with
the provisions in the Independent Audit Criteria and make essential explanation in the audit report.

Article 24

Enterprises shall offer the warrant documents of reform and detailed implement plan in the case of carry out system reform including
consolidation, dividing, revamping, reforming, MOB, altering the distribution system, housing, medical care and aged-providing.

CPA shall pay enough attention to the matter that if the reform measures of enterprises conform to the provisions concerning assets
and financing, taxation and accounting, and shall reflect in the audit report the insufficiency of exposing and disobeying of the
provisions.

Article 25

Enterprises shall timely provide, in the course of cooperating with the CPA to make the annual accounting audit, the internal control
system of managing decision making, operation flow, incoming and payment of capital, loss cancel and other relevant matters.

CPA shall make effective communication with the consigner and make management proposal in accordance with relevant provisions on the
important loophole that influence assets safety and truthfulness of internal control accounting information.

Article 26

Conglomerate shall provide, in the course of cooperating with the CPA to make the amalgamated annual accounting statement audit, detailed
information relevant to the amalgamated accounting statement including manuscript of merge, check material of associated transaction,
alternation material of internal unified accounting policy of the conglomerate, consolidation countervail material and countervail
material of the previous year of amalgamating.

CPA shall pay enough attention to the scope o consolidation, consolidation countervailing item and measure of countervailing, and
shall examine the legality of the making of amalgamated accounting statement.

Article 27

CPA and accounting firm shall make the audit report in accordance with the Independent Accounting Criteria and other regulations within
the promissory time after the field audit. Enterprise shall not incite or force the CPA and accounting firms to make unfaithful or
incorrect audit advice, and shall not make other unreasonable requirements.

Article 28

Leading accounting firm that consigned by the conglomerate shall harmonize all the participating accounting firms to implement the
collectivity audit plan, take in charge of quality control of the audit, make the collective audit report and bear the audit responsibility.

Accounting firms consigned by the conglomerate shall cooperate with the leading accounting firm to compile and implement the collectivity
audit plan, make audit report on concerning part and bear relevant audit responsibility.

Chapter V Administration of Audit Report

Article 29

Audit report of annual accounting statement of enterprises shall offer explanation of audit result including the following listed
items,

(1)

Enterprises that were audited

(2)

Adjustment of difference of the previous audit

(3)

Matters that were not adjusted of current year

(4)

Matters that were not confirmed of current year

(5)

Other matters that CPA calls a need to explain or reflect

The leading accounting firm shall offer the list of participating accounting firms and the type of audit report in its report of audit
result.

Article 30

Leading accounting firm shall reflect collectively the audit result of all the participating accounting firms in the audit report
it makes.

The leading accounting firm shall, in the course of making the collectivity audit report, take the influence of the consolidated accounting
statement of conglomerate into account and then decide the type of audit report in the case that the accounting statements regarding
the subsidiary company were given reservations, no advice or negative advice.

Article 31

Enterprises shall report the audit report and the annual accounting statement to the competent financial authorities, investors and
other relevant departments in accordance with the provisions.

Conglomerate shall report the audit report and the amalgamated annual accounting statement before April 20 of the following year.
The conglomerate in accordance with the relevant provisions shall decide the reporting deadline of subsidiary companies that listed
in the scope of amalgamated accounting statement.

Article 32

The competent administrative authorities shall instruct the enterprises improve financing control or adjust the account after the
examination of the audit report made by the accounting firm that has reservation.

Article 33

Enterprises shall give a presentation of related situation and advice of compiling annual accounting statement in the case that the
accounting firms give an audit report that has reservation, no opinion or negative opinion.

The competent administrative authorities in accordance with relevant provisions and respective situation of the enterprises shall
inspect on the quality of accounting information, set accounting system to right and give penalties in accordance with the law or
regulations like Accounting law of People’s Republic of China and Regulation on Financial and Accounting Report of Enterprises.

Chapter VI Financial Supervision

Article 34

Competent administrative authorities shall give a thorough examination of the record of enterprises and the annual accounting statement
and the audit report and strengthen the supervision of the annual accounting statement audit.

Article 35

Enterprises shall alter the consignment under the following circumstances,

(1)

Consigner does not conform the provision of Article 7

(2)

Accounting firm does not conform the provision of Article 9 so that the audit plan can not be implemented

(3)

Accounting firm violates Article 10 by transferring the audit other accounting firms after distribution

(4)

Violating Paragraph 1 of Article 14 by changing accounting firm without sufficient reasons

(5)

Violating Article 15 by consign the same accounting firm or the accounting firm invested by the same person that make assets evaluation
or give financial consultancy.

(6)

There exist fake facts or disguise of important facts.

(7)

Accounting firms can not fulfill the contract resulting in serious lack of items of annual accounting statement or mistake of important
information

Article 36

The competent administrative authorities shall return the audited annual accounting statement and notify the accounting firm to re-audit
under the circumstance that the audit report did not totally expose matters listed in Article 19 and Article 20 or the content
of audit report did not fit Article 29 .

Article 37

Competent administrative authorities shall instruct the enterprises, which did not consign audit, which did not provide relevant financial
and accounting information and which did not cooperate effectively resulting in CPA’s disability of running efficient procedure of
audit, consign accounting firms to audit again and may give penalty of circulating a notice of criticism.

Article 38

The decision made by competent administrative authorities in accordance with Article 35 , Article 36 ,and Article 37 shall be executed
within 30 working days after the going into effect by the enterprises.

Enterprises shall bear the extra audit added because of the decision of the authorities.

Article 39

Competent administrative authorities shall investigate and affix the legal responsibility of direct responsible person and other responsible
person of enterprises in accordance with the provision of Article 39 of Regulation of Financial and Accounting Report under the
following circumstances,

(1)

No consignment or refusal audit by accounting firm.

(2)

Providing fake annual accounting statement and other related accounting information.

(3)

Refusal to provide relevant financial and accounting information and documents or cooperate with the CPA or obstruct the working of
CPA.

(4)

Inciting or forcing CPA and accounting firm to make unfaithful or false audit report.

Article 40

Competent administrative authorities shall give penalty of circulating a notice of condemnation once proved the accounting firm or
CPA violates this provision by following listed activities,

(1)

Undertake audit at low price resulting in incomplete implementation of audit procedure

(2)

Dividing audit to other accounting firms.

(3)

Surpassing scope of audit capability resulting in delay of finishing the audit plan.

(4)

Providing audit report that does not fit this provision

CPA and accounting firm shall be investigated and affix legal responsibility in accordance with the Accounting Law of People’s Republic
of China and other related regulations in the case of violating law and regulations.

Article 41

Financial administrative bureaus at all level shall inspect the quality of accounting information and issue announcement to the public
in accordance with relevant provisions of Accounting Law of People’s Republic of China.

Article 42

Missionary concerned of the competent financial authorities shall be given administrative penalty in the case of being found misuse
of authority, favoritism and fraudulent practices, abuse power for personal gain or divulgement business secret in the course of
annual accounting statement audit resulting in harming the benefit of the enterprises. Those who violate the criminal law shall be
transferred to judicial departments and investigated and affixed legal responsibility.

Chapter VII Supplementary Provisions

Article 43

This Provision takes effect as of the date of February 1, 2004.

Annex: Record Bill of Annual Accounting Statement Audit of Enterprises (omitted)



 
Ministry of Finance
2004-01-17

 






CONSTITUTION ACT, 1982 – page 22

NOTES (1) The enacting clause was repealed by the Statute Law Revision Act, 1893, 56-57 Vict., c. 14 (U.K.). It read as...

CONSTITUTION ACT, 1982 – page 21

CONSTITUTION ACT, 1982 – page 20

CONSTITUTION ACT, 1982 – page 19

CONSTITUTION ACT, 1982 – page 18

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